D. New Services Provided by Broadband Connectivity
4. Home Health Care
Health care is the biggest industry in the United States economy. In 1999, health care expenditures were $1.2 trillion, or 13 percent of GDP.62 Chronically ill patients, who represent 1 percent of the population, account for one-third of health care expenditures. Telemedicine could provide substantial cost savings in the monitoring of chronically ill patients, by substituting remote monitoring for in-person monitoring.63
61 See Section VI.D, below.
62 Health care expenditures in 1999 were $1,210.7 billion (HCFA), and GDP was $9,299.2 billion (BEA) in current dollars. See HCFA, “National Health Expenditures Aggregate Amounts and Average Annual Percent Change, by Type of Expenditure: Selected Calendar Years 1960-99”,
(downloaded from: http://www.hcfa.gov/stats/nhe-oact/tables/t2.htm) and Bureau of Economic Analysis,
“GDP and Other Major NIPA Series”, (downloaded from:
http://www.bea.doc.gov/bea/ARTICLES/NATIONAL/NIPA/2000/0800gdp.pdf).
63 “Electronic House Call Knocks on Door of Telemedicine Market”, Medical Industry Today, (June 19, 2000).
Criterion Economics, L.L.C. 40 Remote monitoring can reduce the response time needed to address problems of chronically ill patients who are at home, resulting in fewer hospitalizations and emergency room visits. Because the health care industry is very competitive, we would expect almost all of the savings in cost to be passed on to consumers.
Telemedicine cost savings could not only reduce labor hours due in the delivery of home health care and in chronic patient management, but it could also reduce the incidence of emergency room visits and hospitalization, due to better disease management.64 According to Cyber-Care, the manufacturer of Electronic HouseCall, an Internet-based system that allows caregivers to monitor patients in their homes, independent industry studies have shown that remote monitoring of patients’ conditions can reduce costs by 35 to 40 percent, while also improving care.65
Assuming that chronic care patients are responsible for $400 billion in health care expenditures, the following table represents the potential cost savings from increased efficiency in chronic care management.
64 Kaiser Permanente, the largest health maintenance organization in the United States, conducted a quasi-experimental study of telemedicine between May 1996 and October 1997, in which both the treatment and control groups received routine health care and the treatment group also received interactive remote health care in real time. On average, a traditional in-person visit took 45 minutes, whereas remote video visits required less than half as much time (18 minutes). Clearly, remote video visits allow health care professionals to see more patients in a day. In addition, even though the average direct cost of health care delivery was higher for the treatment group ($1,830 versus $1,167), the total mean cost of care excluding home health care was lower for the treatment group ($1,948 versus $2,674). Much of the lower healthcare costs were a result of lower hospitalization costs ($1,087 versus $1,940). Considering that some of the costs of remote health delivery are one-time costs (such as purchasing and setting up the equipment), cost savings would exceed the additional cost of remote home health care. Source: “Outcomes of the Kaiser Permanente Tele-Home Health Research Project,” Archives of Family Medicine 9(1), (Jan.
2000).
65 Medical Industry Today, supra note 63.
Criterion Economics, L.L.C. 41 TABLE 4
Ultimate Cost Savings from Telemedicine ($ Billions per Year)
Improvement in Chronic Care/Disease Management Share of
Households with
Broadband Access 0% 5% 10% 15% 20%
10% 0 2 4 6 8
25% 0 5 10 15 20
50% 0 10 20 30 40
85% 0 17 34 51 68
100% 0 20 40 60 80
Despite the sheer size of the health care industry in the United States, access to health care remains problematic for underserved regions, such as rural and inner city urban areas, and for less mobile populations, such as the elderly and disabled.
Telemedicine would make health care more readily available to these populations, leading to an increase in consumer surplus. Already, a number of telehealth projects in the United States use high-speed data connections and videoconferencing technology to bring high-quality health care to rural and small-town residents.66 In addition, the substantial savings in time associated with telemedicine would reduce the cost of health care for patients, thereby creating additional consumer surplus.
Consumer satisfaction is the key to widespread adoption of remote health monitoring. Several studies have examined patient and physician satisfaction with telemedicine. Results for patient satisfaction with telemedicine were positive in all
Criterion Economics, L.L.C. 42 studies. A University of Oregon report, funded by the Agency for Healthcare Research and Quality in the Department of Health and Human Services, examined 18 studies that assessed patient satisfaction with telemedicine and 10 studies that evaluated physician satisfaction with telemedicine. Only one study showed a preference for face-to-face assessments; the remaining reports all indicated high levels of satisfaction with telemedicine. A similar review conducted through the Telemedicine Center of the East Carolina University School of Medicine found overall high patient satisfaction.
According to the Center’s own study, 98 percent of patients are satisfied with telemedicine.67
Broadband access and reliable home networking will greatly facilitate the adoption of telemedicine. As David Schwartz, director of systems and networks for West Virginia University, Morgantown, and former director of the West Virginia Network, a state telemedicine initiative, points out, “the main concern with transmitting 3D images over a telecommunications network is the high consumption of bandwidth.”68 On the same point, Texas Telemedicine Project’s Dr. Jane Preston says,
And while local projects are making progress, telemedicine is not yet reaching into the homes because homes are still not linked to broadband networks. However, the technology is rapidly advancing and the price is dropping. When America’s communications infrastructure evolves into wide access to two-way video, potential health care applications will
66 See, for example, Jeff Tieman, “Dialing up High-Tech Medicine; L.A. University Opens Doors to its Third Telemedicine Center to Serve Urban Patients,” Modern Healthcare, (Jan. 1, 2001) and
“Telemedicine: Catching the Wave of the Future,” American Health Line (Sept. 15, 1994).
67 Department of Health and Human Service, Health Resources and Services
Administration, Office for the Advancement of Telehealth, “2001 Report to Congress on Telemedicine”, (downloaded from: http://telehealth.hrsa.gov/pubs/report2001/intro.htm). .
68 “Telemedicine News: Starvision to Test Market Potential for Three-Dimensional Telemedicine Systems,” Health Data Network News, (Mar. 20, 1998).
Criterion Economics, L.L.C. 43 include a full range of screening, diagnosis and the delivery of services,
monitoring and treatment.69
Unfortunately, it is difficult to quantify the consumer surplus resulting from the greater availability of health care, so we do not attempt to do that here. Moreover, we have not included the potential benefits from telemedicine's contribution to improvements in the quality of health care in our quantitative estimates of the potential benefits from widespread adoption of broadband. It is easier to quantify cost savings from telemedicine. Assuming telemedicine results in a 10 percent decrease in health care expenditures and all the savings are passed on to consumers in terms of lower health care costs, the increase in consumer surplus would be $20 billion with 50 percent broadband penetration and $40 billion with universal service. These estimates assume that the demand for health care does not change when prices fall. If consumers demand more health care at lower prices, then the increase in consumer surplus would be higher.